Startup Strategy: Innovate What Big Companies Are Commoditizing

I read a post by Ryan Stewart about how he thinks smaller RIA players like Curl and OpenLaszlo are doomed to being niche players while Adobe (Flex) and Microsoft (Silverlight) fight over the big market.

He’s right. Startups need to be 180 degrees out of phase with what big companies are doing. When big companies are innovating, startups should be commoditizing. When big companies are commoditizing, small companies should be innovating:

Consider the RIA example. We’re still innovating on RIA’s, but we’ve moved past the point where startups are the only ones doing that innovation. Flex and Silverlight are from Adobe and Microsoft: very big companies. And they’re innovating. It makes no sense for a startup to try to jump into that circle of fire. It will be hard to get noticed and everything you do will be evaluated against the big companies. While it’s great to be nimble, being nimble in a whirling buzzsaw is no fun.

What’s an example where startups innovate what big companies are commoditizing? There are several. How about MySQL? Databases were heavily commoditizing around three big companies: Oracle, Microsoft, and IBM. Along came the open source innovation. There are currently a bunch of technology innovations playing out as well. But be careful, big companies are starting to take up the innovation theme again for databases:

– Sun buys MySQL

– Amazon launches SimpleDB

– IBM gets involved with CouchDB

Sorry Dr. Stonebreaker, but your timing may be off again.

If we look around at what’s heavily commoditized, we can get an idea of where innovation may be possible, and hence where startups might be looking for some fun. Think of it as the Innovate vs Commoditize “What’s Hot and What’s Not” list:

– Social Networks: Look to me like they’re trending to commoditization, with scraps of innovation still happening. BTW, big is relative. Facebook, LinkedIn, and MySpace are not big like Microsoft or Adobe, but they’re big in Social Networking. A really big player probably wants to commoditize this market by buying one of the already big startups. Tiny startups need to be poised for the next wave of innovation as the commoditization theme matures. Be real about what it means to innovate. A minor variation on what’s already available doesn’t count. Maybe its time to innovate Social Networks for business while the consumer side commoditizes.

– Cloud Computing Platforms: Amazon and Salesforce.com look big. They’re still innovating. Time to commoditize the prior platform generation or wait for the Cloud to move into a commoditization phase. My friends at 3Tera look good to me because they let big hosting businesses get into Cloud computing more on par with these other players. So they assist big players to participate in the innovation at the big player side of the wave. That’s the innovation/commoditization equivalent of selling jeans and pans to the gold miners. Not a bad business.

– SaaS: The small guys definitely innovated the big commoditizers of Enterprise Software here. You couldn’t ask for a better example than Salesforce vs Siebel. This cycle is still not done playing out either. So long as Oracle keeps finding things to buy, the commoditization phase continues on the big end and new SaaS players can create opportunity by innovating.

– Search: Google has completely commoditized search. If you want to have a go at them, you need serious innovation and a highly disruptive model that they won’t be able to afford to copy. “Disruptive” means adopting a strategy that the stronger enemy can’t emulate without destroying their existing business. Anything less and you’ll never get there.

There are many analogies and metaphors to what I’m talking about here. It’s just another wrinkle on Sun Tzu’s admonition to attack where a stronger enemy is weakest, and to try to avoid defending against a stronger enemy’s attacks. When you’re the little guy, a frontal assault is pointless. You’ll get creamed. Totally changing the game, particularly when done in a disruptive manner works.

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This entry was posted on January 19, 2008 at 8:00 pm and is filed under strategy.
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